OVERVIEW
The tides continue to turn for this choppy market. Sell-offs are becoming bigger and
easier, while moving higher is more of a struggle. Just how much could we pull back?
The overall trend is still a bullish one, so don't start uprooting everything. But
for your short-term trading portfolios, it may be time to start playing defense. The
new Market Gauges section at the bottom of the MidWeek Update says the same thing
NASDAQ COMMENTARY
As ugly as today is so far, it's worth noting that we're currently at the low for the
week. You have to understand that Monday and Tuesday were a bit too strong to sustain
at that pace, so a dip could be expected. BUT, now that we have made a lower low, and
will probably make a lower high today, will the technical damage be bad enough to
spook some investors into selling stocks? Probably, but the answer lies in where we
close today. Making a lower trading range is inherently bearish, but a close under
the previous day's low is a much stronger sign that investors have no intention of
continued buying. Yesterday's low was 1922.78, so it's a pretty good bet we'll close
under that level. If we close under Monday's low of 1905, then things are just that
much worse. For us, though, the final straw will be a close under the 20 day EMA
(blue). That 20 day line is right at 1900, so you can expect the big, round number to
augment the support that we typically see around the 20 day EMA level.
For regular readers of the TrendWatch and the Weekly Market Outlook, you'll know that
we've been relying on volume to spot the true trend in this back-and-forth
environment. Specifically, we've been using the Chaikin line. Basically, the Chaikin
line is a volume-weighted momentum line. And while the falling Chaikin line isn't
bullish by any means, it really hasn't been bearish either. Our signal from this
indicator is a cross under the zero level, as that will indicate that the volume
trend has decisively become a bearish one. As you can see in the lower portion of the
chart, that hasn't happened yet.
But according to the stochastic lines, stocks are headed south - at least in the
short-term. Both of the stochastic lines have clearly fallen under the 80 overbought
line, telling us that stocks are starting to correct the overbought situation. That
in itself is not enough of a sell signal, but when pairing that signal up with the
increasingly-bearish volume and falling prices, we can see that we have a lot of
things working against stocks.
On the other hand, as you can see, the major (read 'intermediate') support and
resistance lines (dashed) are still pointing higher. We're using these lines to
forecast the potential extent of any drop. Currently the lower support line is around
1845, so if we cross under the 20 day EMA, that may be the first landing pad. After
that, the next potential stopping point is September's low of 1783. We primarily
bring this up to illustrate the opposing short-term/intermediate-term outlooks. It
looks like starts are going to go through a correction over the next few days, before
resuming the bullish course through the end of the year. Still, the fact remains that
we've yet to close under the 20 day EMA. Until then, we're not going to be convinced
that even the short-term bearish trend will solidify.
NASDAQ CHART
S&P 500 COMMENTARY
The short-term/intermediate-term indications that we see on the Nasdaq chart also
apply to the S&P 500. Things are crumbling, and may continue to do so in the next few
days. But eventually we'll hit the lower end of our bullish range, and get back on
the bullish course. One of the key differences in the S&P chart, however, is that the
S&P 500 is now trading under the 20 day EMA. This IS a primary sell signal, but we'd
prefer to see two consecutive closes under the 20 day EMA before actually acting on
the signal.
As for the technical indicators, we now have the sell signals we had been waiting
for. The stochastics lines fall under 80 means trouble ahead for stocks, and the MACD
crossunder confirms that the bullish momentum has completely been exhausted.
Like the Nasdaq, the S&P 500 is still in a generally bullish trend. The lower end of
the trading range is currently at 1005, while September's low is at 990. Expect to
find support there. If we do indeed fall under both of those potential support
levels, at that point in time we'll rethink our intermediate stance. But knowing that
fourth quarter is usually strong, our expectation is that any decline would be
relatively short-lived, and not completely devastating. But, it would be tradeable.
S&P 500 CHART
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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